LC-05 · Tax
Like-kind exchanges
Sell without paying yet
In ordinary words
An investor can sell a rental building and roll the proceeds into another investment property without paying capital-gains tax at the time of the sale, if strict timelines are met.
Why people call it a crime
A homeowner who sells a house and buys another still owes tax on the gain above the exclusion. A commercial landlord can keep swapping buildings and defer the tax for decades. That feels like a different set of rules.
A scene, not a hypothetical statute
The landlord sells a warehouse, parks the money with a qualified intermediary, and buys another warehouse. No capital-gains check that year. Do it again at the next sale. The tax bill stays in the future.
In legal terms
IRC § 1031 allows deferral when real property held for productive use or investment is exchanged for like-kind real property. The 2017 tax law ended 1031 treatment for personal property. Deadlines are unforgiving: identify replacement property within 45 days and close within 180. Boot (cash taken out) is taxable.
Congress treats the exchange as a continuation of the investment rather than a cash-out event, so recognition of gain waits until a taxable sale.
IRC § 1031; Treas. Reg. § 1.1031(k)-1.
Where it stops being legal
Missing the identification or closing window, exchanging property held primarily for sale (dealer property), or hiding boot is not protected. Sham exchanges are taxable and can be fraudulent.